The British Property Federation is calling on the government to use next week’s Budget to zero-rate VAT on work which allows homes to improve their energy efficiency.

The BPF argues that the government has a critical role to play in supporting property owners and needs to act to relieve the pressures facing those in the residential sector, to ensure that the UK meets its net zero carbon target. 

It wants zero rated VAT on building repair and maintenance of residential buildings to incentivise essential upgrades across the residential sector. And it claims the current approach of targeted VAT relief on the installation of energy saving materials is ineffective, as it fails to recognise that energy efficiency improvements are rarely carried out in isolation.

It says the UK faces a substantial challenge in retrofitting its residential housing stock, with an estimated 58 per cent of properties having an EPC of D or lower in England, and with fewer than a fifth of owners believed to be planning to improve their property’s energy efficiency. 

The BPF says commercial property faces a similar challenge with an estimated 10 per cent of buildings in London rated EPC F or G. 

To encourage investment in large scale commercial retrofit projects, the BPF is advocating for reform of the capital allowance system to better support and encourage long-term investment into carbon reduction and energy efficiency measures. The BPF proposes an alternative form of relief for capital expenditure that would provide full tax relief in one year and use a repayable tax credit system.

And it adds that the government should also take immediate measures to ensure that business rates are not a barrier to improvement and introduce improvement relief. This would ensure that property owners are not penalised by rate rises immediately following environmental performance improvement works. 

BPF chief executive Melanie Leech says: “Some 80 per cent of commercial and residential buildings that will exist in 2050, the deadline for reaching net zero, have already been built. 

“The country’s homeowners and commercial property owners face a real challenge in reaching net zero targets and complying with incoming legislative changes. Failure to remove financial barriers to energy efficiency upgrades, is a failure to recognise the huge task the country faces in reaching net zero.

“The government needs to recognise the importance of incentivising energy upgrades across both the commercial and residential property sectors in next week’s Budget. The Chancellor has a clear opportunity to alleviate costs for households and encourage investment in measures that improve a property’s energy efficiency.”